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The China Policy Institute is a research centre based at the University of Nottingham focusing on all aspects of contemporary China, Taiwan and China's global engagement. The China Policy Institute does not privilege political positions and the views published in Analysis are those of the author.

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Will China become world’s largest research spender by 2020?

China will outpace the United States as the leading research and development (R&D) spender by 2020, according to the OECD Science, Technology and Industry Outlook 2014, a biennial report released on 12 November. Topping Europe in R&D intensity, i.e. the ratio of GDP to R&D spending, in 2012, surpassing the US in gross expenditure on R&D (GERD) will be another important milestone in China’s path to become an innovation-oriented nation.

China’s R&D spending has grown rapidly since 1995, in particularly after 2006 when its Medium and Long-term National Plan for S&T Development (2006−2020) (MLP) set a target to increase R&D intensity to 2.5% by 2020. China’s commitment to R&D spending will continue to transform its economic structure even if the recent economic slowdown may delay its outspending of the US in the statistics.

In fact, in terms of scope and quality of R&D expenditure statistics, there are differences between China and the US or OECD countries. China has learned from this for more two decades. For example, the US R&D expenditure excludes most or all capital expenditure, which is in fact a big share of Chinese R&D spending; Chinese basic research spending excludes most personal expenditure, which is included in the US figure.

The quality of R&D spending statistics is also different. In the US, the contribution of the federal government to GERD is available from the Office of Management and Budget (OMB) and various science and technology mission-oriented agencies such as the National Institutes of Health (NIH), Department of Energy (DoE), Department of Defense (DoD), National Science Foundation (NSF) and so on. Our own experience tells us that we can only collect Chinese data of governmental R&D spending from the R&D units that perform R&D fund, which is guesstimation at best. Thus, a simple Sino−US comparison may not reflect the actual situation.

Second, it is likely that statistics about China’s R&D expenditure are inflated. OECD’s forecast uses the purchasing power parity approach for international comparison, which is based on the domestic purchasing power of the Chinese currency. However, most research equipment, chemical reagents, basic data, among other things are purchased on international markets; and an increasingly substantial amount of research is published in international journals, which Chinese researchers or research institutes have to pay for access to.

China’s statistical system is still a work in progress as its economy has not reached the level of sophistication of its counterparts in the OECD countries. The reliability of Chinese ofﬁcial statistics has long been a topic of discussion in academic and policy circles. Most of the discussion has something to do with the economic data and GDP in particular. Statistics on R&D spending have similar glitches. For example, our research indicates that Chinese enterprises likely overstate spending on R&D to meet the “ofﬁcial” criterion for high-tech enterprises or innovative enterprises, local governments may overstate spending on R&D to meet central government’s growth targets and win inter-city or inter-province competitions, and managers of state-owned enterprises or local governments may also exaggerate spending on R&D for the purpose of performance evaluation and promotion.

Third, even if China does surpass the US in the statistics in 2020, the fact only shows that the gap between China and the US in R&D spending is narrowing but does not suggest that the technological gap between two countries is also closing. Technological advance is a gradual and long-term process of knowledge accumulation, thus a sustainable effort is central to enhancement of the innovative capability. In addition, in 2013 Chinese R&D intensity reached 2.08%, a target that the US achieved in 1957 when its R&D intensity reached 2.15%. The US has maintained its lead in R&D spending thereafter.

World-class R&D spending does not guarantee the production of world-class research. Indeed, Chinese R&D fund is not all spent on R&D. According to The Investigation Report on the Status of S&T Workers in China by the China Association for Science and Technology (CAST), in 2003, some 40 percent of the budgets for R&D programs was used for program research per se. Chinese scientists are preoccupied with quick outcomes and immediate returns under the current performance evaluation system. And misuse or abuse research fund is also widespread.

In particular, MLP launched 16 Mega-Engineering Programs (MEPs) in strategic technologies such as ICT, biotechnology, energy, resources and the health as well as in dual-use and national defense technologies. The Chinese government has earmarked huge amount of money for each of them. In contrast to the institutionalized budget management of other national S&T programs, program officials running these relatively new mega-programs have a much stronger power in deciding where the money goes and who receives it. A large amount of money appropriated to MEPs has been spent in a rush and even led to abuse.

Recent investigations have revealed three chief scientists of the MEPs – Chen Yingxu of Zhejiang UniversityLi Ning of China Agricultural University, and Song Maoqiang of Beijing University of Posts and Telecommunications – have taken public funds for their own benefits.

Therefore, it is probably that China will outspend the US to become world’s leading R&D spender in coming years, but it does not mean that China outpaces the US in R&D capability or innovation. The caveats of the statistics of R&D spending should also be factored in. China has a long way to go to not only increase its investment in R&D, but also significantly enhance its innovative capabilities through effectively and efficiently use the increased R&D spending.

Yuao Sun is associate professor the Dalian University of Technology and Marie Curie fellow at the University of Nottingham where Cong Cao is a senior fellow in the China Policy Institute and associate professor and reader in Contemporary Chinese Studies. Image credit: CC by RDECOM/Flickr